HMRC’s ‘Fishing Expedition’ Against Tax Payers Appeal Fails
HM Revenue & Customs is known for being somewhat aggressive in pursuing taxpayers where it perceives tax may have been dodged. That is part of its remit, after all. But at what point do HMRC inquiries verge into unreasonableness?
HMRC recently appealed1 a ruling of the First-tier Tax Tribunal, which referred in its ruling to enquiries made of the taxpayers as a “fishing expedition”. It failed to have an order from FTT to issue closure notices overturned.
What led to the appeal?
The closure notices were to be issued under s28A Taxes Management Act 1970 in relation to enquiries into the self-assessment tax returns of three brothers for several tax years to 2019-2020.
A company founded by their father was highly successful. The enquiries by HMRC focused on the potential application of the transfer of assets abroad (ToAA) legislation – in relation mainly to transactions that occurred nearly two decades earlier. They related to the transfer of shares in a UK settlement to several offshore entities - and a payment of a £40m dividend out of the family settlement to (unknown) beneficiary/ies.
Despite issuing numerous information notices, to which responses were given, HMRC continued to dispute the brothers’ answers and sought further information – particularly details of the ultimate recipients of the £40m distribution.
The brothers explained that they had received no such distribution and did not know who received it. But HMRC argued that there was a reasonable basis for its view that there may have been transactions satisfying the requirements of the ToAA legislation.
The FTT held that an outstanding query from HMRC focusing on the £40m divided had no reasonable basis. Its continuation of enquiries constituted a fishing expedition. HMRC was well aware that the distribution was not appointed to any of the applicants and that should be “more than enough information on which to be able to close the enquiry as regards the potential for a ToAA charge”.
A closure notice was therefore appropriate.
The Upper Tribunal agreed, upholding the FTT decision and referring to HMRC’s “mistaken view of the facts [which] prolonged the enquiry”.
What does this mean?
The ruling clarifies that HMRC does not have complete freedom to continue lines of enquiry, when responses have been received, without a reasonably held belief that a set of circumstances has existed to which a tax charge may arise.
The fact that HMRC does not like an answer is not enough to justify continuing investigations. If you are an individual or a business and you’re being pursued by HMRC, considering taking specialist advice from expert tax solicitors.
1HMRC v Hitchens & ors [2024] UKUT 114 (TCC)
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